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Shock Persistence and Current Account Dynamics

Author

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  • Kang Shi

    (Chinese University of Hong Kong)

Abstract

One-sector inter-temporal models of the current account predict that a transitory shock to the terms of trade will lead to improvement in trade balance, while a persistent (or permanent) one could result in trade balance deterioration. This paper reexamines this issue in a two-sector small open economy model with non-traded goods and show that the result may not hold, depending on the exchange rate regime.

Suggested Citation

  • Kang Shi, 2011. "Shock Persistence and Current Account Dynamics," Economics Bulletin, AccessEcon, vol. 31(3), pages 2260-2271.
    • Handle: RePEc:ebl:ecbull:eb-11-00131
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P205.pdf
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    References listed on IDEAS

    as
    1. Michael B. Devereux & Philip R. Lane & Juanyi Xu, 2006. "Exchange Rates and Monetary Policy in Emerging Market Economies," Economic Journal, Royal Economic Society, vol. 116(511), pages 478-506, April.
    2. Shi, Kang, 2011. "Sectoral labor adjustment and monetary policy in a small open economy," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 634-643.
    3. Robert Driskill, 2001. "Nontraded Goods and the Current Account," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 16-23, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Two-sector model; Current account; Shock persistence; Terms of trade; Exchange rate regimes.;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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